Africa’s Only Hope Is Industrialization

(Bloomberg Opinion) -- African industrialization has to be among the most important things happening in the world right now. The vast continent, with more than 1.2 billion people, is home to an increasing fraction of the human beings who are still mired in extreme poverty:

. By 2030, the World Bank projects that almost all the people in extreme poverty will live in sub-Saharan Africa. The reason is twofold. First, Africa’s population is growing rapidly:

. Second, Africa has lagged in the industrialization necessary to generate mass employment. The lack of strong, stable governments — a legacy of colonialism — has made it difficult to provide the education, infrastructure, court systems and other public goods that help prepare countries for the leap from subsistence farming to factory work. Well-meaning Western aid and international development agencies couldn’t fill the gap. Meanwhile, nations in East Asia and Southeast Asia became the world’s factories before Africa did.

. But late doesn’t mean never. Rising labor costs in China, and the threat of U.S. tariffs, are finally causing manufacturers to diversify their supply chains. Some of their factories will go to Vietnam and Bangladesh , two rising stars of the developing world. But those countries won’t be big enough to replace China, which means that if manufacturers really want to keep costs down, many will have to look to Africa.

. This process is already well underway. In her book “The Next Factory of the World: How Chinese Investment Is Reshaping Africa,” Irene Yuan Sun — a development-aid worker turned McKinsey & Co. researcher — describes the wave of private Chinese investment sweeping the African continent. This investment often goes overlooked by the international press, which tends to focus on China’s splashy government-backed infrastructure projects and loans . But what Sun describes is something else — Chinese businesspeople moving to Africa and building privately owned factories.

. In 2017, Sun’s research team estimated that there are about 10,000 such factories on the continent, and the number is surely higher now. Nigeria, Zambia, Tanzania and Ethiopia have the largest concentrations, but many other countries are in the mix. Although China still has less total capital invested in Africa than in other regions, it’s catching up fast:

. That foreign direct investment — and manufacturing more generally — is one reason African growth is taking off:

. The picture Sun paints of Chinese capitalism in Africa is not always a pretty one. She cites anecdotes of corruption, pollution, overwork, injuries and managers’ disdain for local workers — phenomena that seem universal to every country in the early stages of manufacturing. But Sun argues powerfully that this ugly, costly process is still the only way that countries can escape poverty.

. The programs of liberalization and deregulation offered by Western countries in the 1990s under the name of the Washington Consensus failed to produce the desired results. Development aid from rich countries has done some real good (and occasionally some bad ) in Africa, but hasn’t been enough to change the continent’s basic economic conditions. And with a few small exceptions like Botswana, natural resources have generally been more of a curse than a blessing. The only thing that reliably seems to transform poor countries into rich ones seems to be the so-called flying geese theory — the idea that manufacturing moves in waves, looking for the next cheap, politically stable production base.

. Now the geese are finally flocking to Africa. This isn’t the neo-colonialism that some fear — indeed, Sun finds that Chinese factories overwhelmingly employ local African workers rather than imported Chinese laborers. Nor is there any sign that automation has made labor-intensive manufacturing obsolete. In other words, there is every indication that the process that brought Europe and Asia out of poverty is starting to work in Africa.

. The question for the U.S. and other developed countries is how they can help African industrialization continue. An industrialized Africa is in America’s best interests. First of all, with Chinese costs rising, African factories are necessary to keep the prices of clothes, electronics and other goods from rising too much. And while some may claim that African competition is taking jobs from American manufacturers, the truth is that if that manufacturing were done in the U.S., it would be mostly automated.

. Even more importantly, African development is the key to a stable world. An underdeveloped Africa, with an exploding impoverished population, would fall prey to climate disasters and wars. That would create global tensions, as the U.S., Russia and other powerful countries jockey for influence over war-torn regions, as has happened in Syria. It would also create waves of refugees, knocking at the doors of rich countries — as Syria has, but on a much larger scale.

. In order to forestall this grim future and give hope and security to the world’s neediest people, the U.S. and other rich countries need to encourage imports of African-made goods. The African Growth and Opportunity Act , passed in 2000, was a good start, but more can be done. Market access ensures stable demand, which provides an incentive for Chinese and other entrepreneurs to invest and build for the long term.

. African industrialization will complete the great transformation that began more than two centuries ago in Britain — the mass movement of humanity from indigence to material security. This is the last frontier of poverty reduction.

. To contact the editor responsible for this story: James Greiff at jgreiff@bloomberg.net

. This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

. Noah Smith is a Bloomberg Opinion columnist. He was an assistant professor of finance at Stony Brook University, and he blogs at Noahpinion.

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Africa’s Only Hope Is Industrialization